You should read the following discussion and analysis along with our consolidated financial statements and related notes included elsewhere in this annual report.
Forward-Looking Statements The following discussion contains forward-looking statements that involve risks and uncertainties. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, "Risk Factors" in this Annual Report. See "Special Note Regarding Forward-Looking Statements."
We are a biotechnology company focused on the discovery, development and commercialization of long-acting therapeutics designed to transform the standard of care for patients facing serious diseases. We are focused on infectious diseases and oncology. Our lead product candidate is rezafungin acetate, an intravenous formulation of a novel echinocandin antifungal. Rezafungin is being developed as a once-weekly, high-exposure therapy for the first-line treatment and prevention of serious, invasive fungal infections. In addition, we are using our Cloudbreak® platform to develop a potential new class of drugs called drug-Fc Conjugates, or DFCs, for the prevention and treatment of serious diseases. Our initial development programs target influenza and other viral infections, including RSV, HIV and the SARS-CoV-2 strains causing COVID-19. In addition, we have expanded the Cloudbreak platform to discover and develop DFCs to treat cancer. Our business is subject to various trends, events or uncertainties that are reasonably likely to cause our reported financial information not to be necessarily indicative of future operating results or of future financial condition. As discussed below, the COVID-19 pandemic has delayed our conduct of clinical trials and other key activities and there is uncertainty regarding the emergence of potential new viral strains. We may also be impacted by broader macroeconomic conditions, high inflation, and supply chain disruptions. The stock market, and in particular the market for pharmaceutical and biotechnology company stocks, has recently experienced significant decreases in value. This volatility and valuation decline have affected the market prices of securities issued by many companies, often for reasons unrelated to their operating performance. These and other uncertainties are discussed in greater detail below. 63 --------------------------------------------------------------------------------
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The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption in financial markets.
We continue to monitor the potential impact of the COVID-19 global pandemic, and particularly the Delta variant, on our business and maintain our previously implemented measures designed to protect the health and safety of our workforce, including a work-from-home policy in line with state and local requirements for employees who can perform their jobs offsite. We are continuing our essential research and laboratory activities at our facilities and are taking precautionary measures to protect our employees working in our facilities in such capacities, including establishing a written worksite-specific COVID-19 prevention plan and implementing a vaccine mandate. We are reliant on our information technology systems, infrastructure and data to conduct our business. Adopting a work-from-home policy during this pandemic has increased the complexity of our computer systems, making them inherently more vulnerable to service interruption or destruction, malicious intrusion and random attack.
While we have not experienced any significant disruptions to our manufacturing or distribution supply chain to date, we are unable to fully assess the potential impact that an extended duration of this pandemic may have. on our manufacturing or distribution processes in the future.
As we continue to actively advance our rezafungin Phase 3 clinical development program, we remain in close contact with our principal investigators and clinical sites and continue to monitor the impact of COVID-19 on our trials, expected timelines and costs on an ongoing basis. While the ReSPECT Phase 3 clinical trial for prophylaxis remains open for enrollment, we continue to monitor the near- and long-term impact of COVID-19 on the ability of our clinical investigators to recruit patients at each of our global clinical trial sites. In addition, many clinical trial operational activities typically require travel, such as site activation, monitoring, investigators' meetings and quality audits. These activities are still impacted by travel restrictions. The COVID-19 pandemic continues to affect areas in which we operate, and we believe the outbreak continues to have a negative impact on our operating results and financial condition. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our clinical trials, employees and vendors, all of which are uncertain and cannot be predicted. Given these uncertainties, we remain unable to reasonably estimate the related impact to our business, operating results and financial condition, if any. We will continue to evaluate the impact of the COVID-19 pandemic on our business. Rezafungin Rezafungin is a novel molecule in the echinocandin class of antifungals. We are developing rezafungin for the first-line treatment and prevention of serious, invasive fungal infections which are associated with high mortality rates.
STRIVE Phase 2 Clinical Trial
March 2018and July 2019, we reported positive topline results from Parts A and B, respectively, of STRIVE, our global, randomized Phase 2 clinical trial of rezafungin. STRIVE was an international, multicenter, double-blind clinical trial evaluating the safety, tolerability and efficacy of once-weekly dosing of rezafungin compared to once-daily dosing of caspofungin in patients with candidemia and/or invasive candidiasis. In the STRIVE clinical trial, rezafungin met all of its objectives for efficacy, safety and tolerability in the treatment of patients with candidemia and/or invasive candidiasis.
ReSTORE Phase 3 Clinical Trial
December 2021, we reported positive topline results from ReSTORE, our Phase 3 pivotal clinical trial in patients with candidemia and/or invasive candidiasis. ReSTORE was a global, randomized, double-blind, controlled trial evaluating the efficacy and safety of rezafungin as a potential first-line treatment for candidemia and invasive candidiasis. ReSTORE enrolled 187 patients and evaluated one 400 mg dose of rezafungin for the first week followed by 200 mg of rezafungin dosed once-weekly for up to four weeks in total. The treatment arm was compared to approved daily dosing of caspofungin in a 1:1 randomization. In the ReSTORE trial, rezafungin met the primary endpoint for the U.S.FDA NDA submission of all-cause mortality at Day 30, and also met the primary endpoint for the EMA MAA submission of global cure at Day 14. Both results demonstrated statistical non-inferiority of rezafungin dosed once-weekly, versus caspofungin dosed once-daily, the current standard of care. Patients receiving rezafungin cleared their blood of fungal pathogens a median of 3 hours faster than patients receiving caspofungin (23.9 vs 27.0 hours, respectively) and were discharged from the ICU a median 9.5 days earlier than patients receiving caspofungin (5.0 vs 14.5 days, respectively). 64 -------------------------------------------------------------------------------- CIDARA THERAPEUTICS, INC.
Summary of key efficacy results from the ReSTORE clinical trial:
Rezafungin once-weekly Caspofungin once-daily 95% CI 400mg Wk1/200mg 70mg D1/50mg N=93 (mITT) N=94 (mITT) n (%) n (%) Primary Endpoints Day 30 All-Cause Mortality (FDA) 22 (23.7) 20 (21.3) 2.4 (-9.7, 14.4) Day 14 Global Cure (EMA) 55 (59.1) 57 (60.6) -1.11 (-14.9, 12.7)
Day 5 Mycologic Eradication2 50/64 (78.1) 46/67 (68.7) Day 5 Global Cure 52 (55.9) 49 (52.1) Day 14 Mycologic Eradication2 46/64 (71.9) 47/67 (70.1) Exploratory Endpoints Day 1 Negative Blood Culture3 36/67 (53.7) 30/65 (46.2) Day 2 Negative Blood Culture3 49/66 (74.2) 41/64 (64.1) Median ICU Length of Stay3,4 5.0 days 14.5 days (n=17) (n=28) 1 Point estimate and confidence interval for the difference is adjusted for the randomization factors. 2 Patients with candidemia only. 3 Not powered for statistical comparison. 4 All patients in the ICU on day 1 or admitted to the ICU during the study included except for those who died prior to ICU discharge. Rezafungin was generally well tolerated. Overall rates of adverse events and serious adverse events were comparable in patients receiving rezafungin and caspofungin. Rates of adverse events leading to study drug discontinuation were also similar for rezafungin and caspofungin. Based on the positive topline results of our ReSTORE trial and recent positive pre-NDA discussions with the FDA about our clinical and nonclinical data package, we expect to file an NDA application for rezafungin for the treatment of candidemia and/or invasive candidiasis with the FDA, and similar applications with other regulators outside the
U.S., in mid-2022. We have completed the ReSTORE trial and conducted the primary analyses required for potential approval in U.S.and Europebut are continuing to enroll and treat patients in Chinato support Chinese regulatory filings.
Integrated ReSTORE Phase 3 and STRIVE Phase 2 results
The integrated results from our Phase 3 ReSTORE trial and our Phase 2 STRIVE trial in all patients who received the 400 mg/200 mg dosage regimen demonstrate that rezafungin is non-inferior to caspofungin for the treatment of candidemia and invasive candidiasis. The data showed numerically improved results compared to caspofungin on several key measures:
•All-cause mortality at day 30, the FDA’s primary endpoint, was 18.7% for rezafungin and 19.4% for caspofungin.
•Mycological eradication at D5 and D14 was 73.4% and 71.9%, respectively, for rezafungin and 64.5% and 68.4%, respectively, for caspofungin.
•Mycological eradication on day 5 for patients with candidemia only was 80.0% for rezafungin and 67.8% for caspofungin.
•Patients receiving rezafungin had a shorter median time to negative blood culture (22.3 days) compared to caspofungin (26.3 days).
ReSPECT Phase 3 Clinical Trial
We are currently conducting the ReSPECT, single, global, randomized, double-blind, controlled Phase 3 pivotal clinical trial in patients undergoing allogeneic blood and marrow transplant to assess rezafungin in a 90-day prophylaxis regimen to prevent infections due to Candida, Aspergillus and Pneumocystis. Rezafungin, dosed at 400 mg for the first week followed by 200 mg once weekly doses out to 90 days, is being compared to a regimen containing two drugs (an azole and Bactrim) dosed once daily for 90 days. The primary efficacy outcome for the FDA and EMA is fungal-free survival at 65 --------------------------------------------------------------------------------
CIDARA THERAPEUTICS, INC.day 90. We expect this trial to enroll approximately 462 patients. While the ReSPECT trial remains open for enrollment, we continue to monitor the near- and long-term impact of COVID-19 on the ability of our clinical investigators to recruit patients at each of our global clinical trial sites.
Mundipharma collaboration agreement
September 3, 2019, we announced a strategic partnership with Mundipharmato develop and commercialize rezafungin in an intravenous formulation for the treatment and prevention of invasive fungal infections. Under the terms of the Mundipharma Collaboration Agreement, we granted Mundipharmaan exclusive, royalty-bearing license to develop, register and commercialize rezafungin outside the U.S.and Japan. The total potential transaction value is $568.4 million, including an equity investment, an up-front payment, global development funding, and certain development, regulatory, and commercial milestones. As of December 31, 2021, we have received $9.0 millionfrom the sale of our equity to Mundipharma, a $30.0 millionup-front payment and $42.3 millionin global development funding, which includes an $11.1 millionmilestone payment we received in January 2021which is creditable against future royalties payable to us. In addition, we received $2.8 millionin January 2022pursuant to a milestone achieved in December 2021.
We believe our Cloudbreak platform has the potential to offer a fundamentally new approach to prevent and treat serious diseases, by developing product candidates designed to provide potent disease targeting activity and immune system engagement in a single long-acting molecule. The Cloudbreak platform recognizes that serious disease often results when a pathogen or cancer cell evades or overcomes the host immune system. Our Cloudbreak DFC candidates are designed to counter diseases in two ways: prevention of disease proliferation or immune evasion by directly targeting and, where applicable, by focusing the immune system on a pathogen or infected cell. We believe this is a potentially transformative approach, distinct from current therapies, monoclonal antibodies and vaccines. In addition, DFCs are designed to have several advantages, including:
•multivalent bonding, which has the potential to increase potency;
•ability to engage different targets on the same pathogen to decrease resistance or, in the case of a cancerous cell, to serve as a "drug cocktail" in a single molecule, which may improve response to treatment;
•Ability to target multiple viral pathogens or oncological targets with a single DFC; and
•potential for universal coverage against all viral variants and all people, regardless of their immune status.
In contrast to monoclonal antibodies, our DFCs are smaller, have the potential for better tissue penetration and are designed to target multiple sites. Unlike small molecules, we believe DFC optimization can be focused primarily on potency. Our lead Cloudbreak candidates are DFCs for the prevention and treatment of influenza, or influenza DFCs. In
September 2020, we nominated CD388, our influenza DFC, as a development candidate. CD388 is similar to our previous development candidate, CD377, but provides the potential for longer-lasting protection from influenza. We submitted an IND for CD388 in December 2021. In January 2022, Cidara received correspondence from the FDA affirming that the 30-day review period concluded and the IND was active. We plan to initiate a Phase 1 study in healthy volunteers before the end of the current quarter. This study will be fully funded by Janssen as part of the Janssen Collaboration Agreement. The Cloudbreak platform has also enabled us to expand the development of DFCs to target other life-threatening viruses, including RSV and HIV. In response to the global pandemic, we are also leveraging our Cloudbreak platform to identify new DFCs against Coronavirus, or CoV, including the strains causing COVID-19. In addition, we have expanded the Cloudbreak platform beyond infectious diseases to discover and develop highly potent DFCs that can target multiple pathways with a single DFC for oncologic diseases.
Janssen cooperation agreement
Under the terms of the Janssen Collaboration Agreement, we will collaborate in the research, preclinical and early clinical development of CD388, or another mutually-agreed influenza DFC development candidate, under a mutually-agreed research plan with the objective of advancing development through Phase 1 clinical trials and the first Phase 2 clinical trial. We will be responsible for performing all IND-enabling studies and clinical trials under the research plan. Both parties will be responsible for conducting certain specified chemistry, manufacturing and controls development activities under the research plan. Janssen will be solely responsible, and reimburse us for internal personnel and out-of-pocket costs 66 --------------------------------------------------------------------------------
CIDARA THERAPEUTICS, INC.incurred in performing the research plan activities in accordance with an agreed budget. After completion of the research plan and upon its election to proceed with development, Janssen will be solely responsible for late-stage development, manufacturing, registration and commercialization. Upon the effectiveness of the Janssen Collaboration Agreement, Janssen paid us an upfront payment of $27.0 million. As of the execution of the Janssen Collaboration Agreement, we are entitled to reimbursement by Janssen of up to $58.2 millionin research and development costs incurred in conducting research plan activities. As of December 31, 2021, we have received the $27.0 millionup-front payment and $10.2 millionin research and development reimbursements. We are eligible to receive up to $240.0 millionin development and regulatory milestone payments from Janssen for successful completion of certain activities over the next several years, including but not limited to initiation of a Phase 1 trial for CD388, Janssen's decision to proceed with clinical development and initiation of a pivotal trial. In addition, we may be eligible to receive approximately $455.0 millionin commercial milestones as well as royalties on tiers of annual net sales of products at rates from the mid-single digits to the high-single digits. Liquidity Overview Since our inception, we have devoted substantially all of our financial resources and efforts to research and development and have incurred significant operating losses. As of December 31, 2021, we had an accumulated deficit of $377.2 million. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. In connection with the preparation of our financial statements for the year ended December 31, 2021, we performed an analysis of our ability to continue as a going concern. We believe, based on our current business plan, that our existing cash and cash equivalents will not be sufficient to fund our obligations for twelve months from the issuance of these financial statements. Our ability to execute our current business plan depends on our ability to obtain additional funding through equity offerings, debt financings or potential licensing and collaboration arrangements. We may not be able to raise additional funding on terms acceptable to us, or at all, and any failure to raise funds as and when needed will compromise our ability to execute on our business plan.
OVERVIEW OF FINANCIAL OPERATIONS
To date, we have generated all of our revenues from our strategic partnerships with
Mundipharmaand Janssen. In the future, we may generate revenue from a combination of license fees and other upfront payments, other funded research and development agreements, milestone payments, product sales, government and other third-party funding and royalties in connection with strategic alliances. We expect that any revenue we generate will fluctuate from quarter-to-quarter as a result of the timing of our achievement of nonclinical, clinical, regulatory and commercialization milestones, the timing and amount of payments relating to such milestones and the extent to which any of our products are approved and successfully commercialized. If we are unable to fund our development costs or we are unable to develop product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenues and our results of operations and financial position would be adversely affected.
Research and development costs
To date, our research and development expenses have related primarily to nonclinical development of our rezafungin acetate and our Cloudbreak platform, as well as clinical development of rezafungin acetate. Research and development expenses consist of wages, benefits and stock-based compensation for research and development employees, as well as the cost of scientific consultants, facilities and overhead expenses, laboratory supplies, manufacturing expenses, and nonclinical and clinical trial costs. We accrue clinical trial expenses based on work performed, which relies on estimates of total costs incurred based on patient enrollment, completion of studies or other activities within studies and other events. Research and development costs are expensed as incurred and costs incurred by third parties are expensed as the contracted work is performed. We accrue for costs incurred as the services are being provided by monitoring the status of the study or project and the invoices received from our external service providers. We adjust our accruals as actual costs become known. We may receive potential research and development funding through a partnership from the
National Institute of Allergy and Infectious Diseases. We have evaluated the terms of the grants to assess our obligations and the classification of funding received. Amounts received for funded research and development are recognized in the statement of operations as a reduction to research and development expense over the grant period as the related costs are incurred to meet our obligations. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of development, primarily due to the 67 -------------------------------------------------------------------------------- CIDARA THERAPEUTICS, INC.increased size and duration of later-stage clinical trials. We expect our research and development expenses to increase over the next several years as we continue to conduct nonclinical and clinical studies, expand our research and development pipeline and progress our product candidates through clinical trials. However, it is difficult to determine with certainty the duration, costs and timing to complete our current or future nonclinical programs and clinical trials of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include, but are not limited to, the following:
•the impact of the COVID-19 pandemic and other similar health crises;
•trial costs per patient;
•the number of patients taking part in the trials;
•the number of sites included in the trials;
•the countries in which the trials are taking place;
•the time needed to enroll eligible patients;
•the number of doses patients receive;
•patient drop-out or default rates;
•possible additional safety monitoring or other studies requested by regulatory authorities;
• the duration of the patient’s follow-up;
•the development phase of the candidate product; and
•the efficacy and safety profile of the candidate products.
Research and development expenses by major program or category were as follows (in thousands): Year ended December 31, 2021 2020 2019 Rezafungin
$ 43,175 $ 43,011 $ 27,100Cloudbreak platform 10,497 7,574 3,392 Personnel costs 17,135 15,151 13,559
Other research and development costs 2,280 2,281 2,350 Total research and development costs
We typically deploy our employees, consultants and infrastructure resources across our programs. Thus, some of our research and development expenses are not attributable to an individual program but are included in other research and development expenses as shown above. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate's commercial potential.
General and administrative expenses
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, legal, business development, commercial planning and support functions. Other general and administrative expenses include facility and overhead costs not otherwise included in research and development expenses, consultant expenses, travel expenses and professional fees for auditing, tax, legal, and other services. We expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs associated with operating as a publicly traded company. These increases will likely include legal fees, accounting fees, directors' and officers' liability insurance premiums and costs associated with investor relations. 68 --------------------------------------------------------------------------------
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Other income (expenses)
Other income (expense) consists primarily of the change in the fair value of the contingent forward purchase obligation and related issuance costs, interest income and expense, and various income or expense items of a non-recurring nature. We earn interest income from interest-bearing accounts and money market funds for cash and cash equivalents. Interest expense represents interest payable related to term loans and the amortization of debt issuance costs.
Conditional forward purchase obligation
May 21, 2018, we entered into a subscription agreement with certain investors providing for the purchase and sale of up to an aggregate of $120.0 millionof common stock and preferred stock in three closings. The second and optional third closings and warrants related to the optional third closing were to be triggered by our announcement of topline data from our STRIVE Part B Phase 2 clinical trial of rezafungin. We determined that these closings are classified as liabilities and represent contingent forward purchase obligations. These liabilities are recorded at their estimated fair value initially and on a recurring basis. The liability was initially recorded at $4.3 millionon May 21, 2018, and fair value adjustments resulting in a gain of $0.4 millionwere recorded during the year ended December 31, 2019. Because we elected not to consummate the second closing of the offering in August 2019, the contingent forward purchase obligation did not exist as of December 31, 2021or 2020.
Beneficial conversion function
February 2020, we completed a rights offering, pursuant to which we sold 6,639,307 shares of common stock and 531,288 shares of Series X Convertible Preferred Stock for gross proceeds of $30.0 million. Because the effective conversion price of the Series X Convertible Preferred Stock on the commitment date was below the fair value of the common stock at the date of issuance, a beneficial conversion feature with a calculated fair value of $2.8 millionexisted at the issuance date. As the Series X Convertible Preferred Stock was fully convertible at issuance, the full $2.8 millionwas recorded at issuance as a one-time deemed dividend on February 12, 2020. This one-time, non-cash deemed dividend impacted accumulated deficit and additional paid in capital at December 31, 2020and net loss attributable to common stockholders and net loss attributable to common stockholders per share for the year ended December 31, 2020.
CRITICAL ACCOUNTING ESTIMATES
Our discussion and analysis of our financial condition and results of operations is based upon financial statements that we have prepared in accordance with accounting principles generally accepted in the
U.S.The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities as of the date of the financial statements, and the revenues and expenses incurred during the reporting periods. We believe that the estimates, judgments and assumptions are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. Historically, revisions to our estimates have not resulted in a material change to our financial statements. While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, the significant accounting estimates that we believe are important to aid in fully understanding and evaluating our reported financial results include the following:
We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, or Topic 606, which applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or service we transfer to a customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and identify those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. In a contract with multiple performance obligations, we must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction 69 --------------------------------------------------------------------------------
CIDARA THERAPEUTICS, INC.price is allocated among the performance obligation. The estimation of the stand-alone selling price(s) may include estimates regarding forecasted revenues or costs, development timelines, discount rates, and probabilities of technical and regulatory success. We evaluate each performance obligation to determine if it can be satisfied at a point in time or over time. Any change made to estimated progress towards completion of a performance obligation and, therefore, revenue recognized will be recorded as a change in estimate. In addition, variable consideration must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price. If a license to our intellectual property is determined to be distinct from the other performance obligations identified in a contract, we recognize revenues from the transaction price allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from the allocated transaction price. We evaluate the measure of progress at each reporting period and, if necessary, adjust the measure of performance and related revenue or expense recognition as a change in estimate. At the inception of each arrangement that includes milestone payments, we evaluate whether the milestones are considered probable of being reached. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our or a collaboration partner's control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received. At the end of each reporting period, we re-evaluate the probability of achievement of milestones that are within our or a collaboration partner's control, such as operational development milestones and any related constraint, and, if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which will affect collaboration revenues and earnings in the period of adjustment. Revisions to our estimate of the transaction price may also result in negative collaboration revenues and earnings in the period of adjustment. For arrangements that include sales-based royalties, including commercial milestone payments based on the level of sales, and a license is deemed to be the predominant item to which the royalties relate, we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied, or partially satisfied. To date, we have not recognized any royalty revenue from collaborative arrangements. In September 2019, the we entered into the Mundipharma Collaboration Agreement with Mundipharma. We concluded that there were three significant performance obligations under the Mundipharma Collaboration Agreement: the license, the research and development services, and the clinical supply services, and that the obligations are distinct from each other. Revenue associated with the license was recognized upon delivery in September 2019. In March 2021, we entered into the Janssen Collaboration Agreement with Janssen. We concluded that there were three significant performance obligations under the Janssen Collaboration Agreement: the license, the research and development services, and the clinical supply services, and that the obligations are distinct from each other. Revenue associated with the license was recognized upon delivery in May 2021. We concluded that progress towards completion of the research and development and clinical supply performance obligations related to the MundipharmaCollaboration Agreement is best measured in an amount proportional to the collaboration expenses incurred and the total estimated collaboration expenses. We periodically review and update the estimated collaboration expenses, when appropriate, which may adjust revenue recognized for the period. While such changes to our estimates have no impact on our reported cash flows, the amount of revenue recorded in the period could be materially impacted. Revenue for the Janssen Collaboration Agreement is recognized based on actual amounts billed as the underlying services are provided and billed at market rates. The transaction prices to be recognized as revenue under both the Mundipharma Collaboration Agreement and the Janssen Collaboration Agreement consist of upfront payments and estimated reimbursable research and development and clinical supply costs.
Potential future payments for variable consideration, such as clinical, regulatory or commercial milestones, will be recognized when it is probable that, if recorded, a material reversal will not occur. Potential future royalty payments will be recognized as revenue when the associated sales occur.
See note 8 of the financial statements for additional information.
Research and development costs
Research and development expenses consist of wages, benefits and stock-based compensation charges for research and development employees, scientific consultant fees, facilities and overhead expenses, laboratory supplies, manufacturing expenses, and nonclinical and clinical trial costs. We accrue nonclinical and clinical trial expenses based on work performed, which relies on estimates of total costs incurred based on patient enrollment, completion of studies, and other 70 --------------------------------------------------------------------------------
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events. We periodically check the accuracy of these estimates with our service providers and make adjustments if necessary.
Costs incurred for the purchase of technology and intellectual property assets are charged to research and development expenses if it has not been conclusively proven that the technology is feasible and has no other future use .
Accumulation of preclinical and clinical trials
We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on the facts and circumstances known to us at that time. Our accrued expenses for preclinical studies and clinical trials are based on estimates of costs incurred and fees that may be associated with services provided by contract research organizations, or CROs, clinical trial investigational sites and other clinical trial-related activities. Payments under certain contracts with such parties depend on factors such as successful enrollment of patients, site initiation and the completion of clinical trial milestones. In accruing for these services, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If possible, we obtain information regarding unbilled services directly from these service providers. However, we may be required to estimate these services based on other information available to us. If we underestimate or overestimate the activities or fees associated with a study or service at a given point in time, adjustments to research and development expenses may be necessary in future periods. Historically, our estimated accrued liabilities have approximated actual expense incurred. Subsequent changes in estimates may result in a material change in our accruals.
We account for stock-based compensation expense related to stock options, Restricted Stock Units, or RSUs, Performance-based RSUs, or PRSUs, and Employee Stock Purchase Plan, or ESPP, rights by estimating the fair value on the date of grant. The Company estimates the fair value of stock options granted to employees and non-employees using the Black-Scholes option pricing model. The fair value of RSUs and PRSUs granted to employees is estimated based on the closing price of the Company's common stock on the date of grant. The assumptions included in the Black-Scholes option pricing model include (a) the risk-free interest rate, (b) the expected volatility of our stock, (c) the expected term of the award, and (d) the expected dividend yield. For periods ending on or before
December 31, 2020, we based the estimate of expected volatility on the historical volatility of a group of similar companies that are publically traded, due to the lack of an adequate history of a public market for the trading of our common stock and a lack of adequate company-specific historical and implied volatility data. For these analyses, we selected companies with comparable characteristics, including enterprise value, risk profiles, and position within the industry, and with historical share price information sufficient to meet the expected life of the stock-based awards. We computed the expected volatility data using the daily close prices for the selected companies' shares during the equivalent period of the calculated expected term of the our stock-based awards. In January 2021, we began to compute the historical volatility data using the daily close prices for our common stock during the equivalent period of the calculated expected term of our stock-based awards. We estimated the expected life of employee stock options using the "simplified" method, whereby the expected life equals the average of the vesting term and the original contractual term of the option. The risk-free interest rates for periods within the expected life of the option are based on the yields of zero-coupon U.S.treasury securities. The expected dividend yield of zero reflects that we have not paid cash dividends since inception and do not intend to pay cash dividends in the foreseeable future. For awards subject to time-based vesting conditions, including those with a graded vesting schedule, stock-based compensation expense is recognized using the straight-line method. For performance-based awards to employees, (i) the fair value of the award is determined on the grant date, (ii) we assess the probability of the individual performance milestones under the award being achieved and (iii) the fair value of the shares subject to the milestone is expensed over the implicit service period commencing once management believes the performance criteria is probable of being met. We recognize forfeitures related to stock-based compensation as they occur and any compensation cost previously recognized for awards for which the requisite service has not been completed is reversed in the period that the award is forfeited. 71 -------------------------------------------------------------------------------- CIDARA THERAPEUTICS, INC.
RESULTS OF OPERATIONS
Comparison of years ended
The following table summarizes our results of operations for the years ended
Year ended December 31, 2021 2020 Change Collaboration revenue
$ 49,572 $ 12,067 $ 37,505Research and development 73,087 68,017 5,070 General and administrative 18,740 15,899 2,841 Other expense, net (212) (262) 50 Collaboration revenue Collaboration revenue was $49.6 millionand $12.1 millionfor the years ended December 31, 2021and 2020, respectively. Revenue for the year ended December 31, 2021included $27.0 millionof revenue recognized upon transfer of an intellectual property license to Janssen in May 2021and $2.0 millionof revenue recognized upon the achievement of a milestone under the MundipharmaCollaboration Agreement in December 2021. The remaining revenue for 2021 relates to ongoing research and development and clinical supply services provided to Mundipharmaand Janssen of $11.2 millionand $9.4 million, respectively. Revenue for the year ended December 31, 2020relates to ongoing research and development and clinical supply services provided to Mundipharma.
Research and development costs
Research and development expenses were
General and administrative expenses General and administrative expenses were
Other expense, net Other expense, net for the years ended
December 31, 2021and 2020 related primarily to interest expense in connection with our loan from Pacific Western Bank, offset by interest income generated from cash held in interest-bearing investments.
CASH AND CAPITAL RESOURCES
Our primary sources of liquidity are our cash and cash equivalents, as well as the cash flows generated from our partnerships with
Mundipharmaand Janssen, equity and debt financings. We have devoted our resources to funding research and development programs, including research, preclinical and clinical development activities. Our ability to fund future operating needs will depend on a combination of equity, debt or other financing structures, receipt of payments under the Mundipharma Collaboration Agreement and the Janssen Collaboration Agreement, as well as potentially entering into other collaborations, strategic alliances or licensing arrangements with third parties or receiving government and/or charitable grants or contracts. Our ability to raise additional capital may also be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets in the U.S.and worldwide resulting from the ongoing COVID-19 pandemic. We are eligible to receive up to $240.0 millionin development and regulatory milestone payments from Janssen for successful completion of certain activities over the next several years, including but not limited to initiation of a Phase 1 trial for CD388, Janssen's decision to proceed with clinical development and initiation of a pivotal trial. In addition, we may be eligible to receive approximately $455.0 millionin commercial milestones as well as royalties on tiers of annual net sales of products at rates from the mid-single digits to the high-single digits.
CIDARA THERAPEUTICS, INC.stock having an aggregate offering price of up to $50.0 million. As of December 31, 2021, the aggregate offering price remaining under the Sales Agreement was $48.5 million. The maturity date of our loan with Pacific Western Bankis July 3, 2022, at which time all obligations under the Loan Agreement will be due and payable. As of December 31, 2021, future principal payments due under the loan agreement were $2.6 million. Our lease with Nancy Ridge Technology Center, L.P.expires on December 31, 2023with options for two individual two-year extensions, which have not been exercised, and remain in effect and available to the Company. As of December 31, 2021, the Company was not reasonably certain that it would exercise the extension options, and therefore did not include these options in the determination of the total lease term for accounting purposes. Total undiscounted operating lease payments are $2.8 millionas of December 31, 2021. The Company enters into contracts in the normal course of business with vendors for research and development activities, manufacturing, and professional services. These contracts generally provide for termination either on notice or after a notice period. As discussed further below, we believe that our existing cash and cash equivalents will not be sufficient to fund our obligations for the next twelve months. There are many factors that could impact our operating cash flow, most notably achievement of milestones under our Mundipharmaand Janssen Collaboration Agreements. We are mindful that conditions in the current macroeconomic environment could affect our ability to achieve our goals. We operate and conduct clinical trials in countries that face economic volatility and weakness. Sustained weakness or further deterioration of the local economies and currencies and adverse effects of the impact of the ongoing COVID-19 pandemic may pose operational challenges in those countries. We will continue to monitor these conditions and will attempt to adjust our business plans, as appropriate, to mitigate macroeconomic risks. We enter into contracts in the normal course of business with vendors for research and development activities, manufacturing, and professional services that generally provide for termination either on notice or after a notice period. Our material cash requirements include costs to complete agreed-upon activities under our Mundipharmaand Janssen Collaboration agreements, as well as personnel and general and administrative support costs.
2021 2020 2019 Net cash provided by (used in): Operating activities
$ (25,232) $ (54,411) $ (28,532)Investing activities (41) (186) (35) Financing activities 44,597
37,278 14,273 Net increase (decrease) in cash and cash equivalents
Operating activities Net cash used in operating activities was
$25.2 millionfor the year ended December 31, 2021compared to $54.4 millionand $28.5 millionfor the years ended December 31, 2020and 2019, respectively. Net cash used in operating activities was attributable to a net loss of $42.5 millionfor the year ended December 31, 2021compared to net losses of $72.1 millionand $41.1 millionfor the years ended December 31, 2020and 2019, respectively. Net loss for the year ended December 31, 2021includes revenue of $49.6 million, recognized under our Collaboration Agreements with Mundipharmaand Janssen. Net loss for the years ended December 31, 2020and 2019 includes revenue of $12.1 millionand $20.9 million, respectively, recognized under our Collaboration Agreement with Mundipharma. For all periods presented, the primary use of cash was to fund research and development activities for our product candidates, which activities and uses of cash we expect to continue to increase for the foreseeable future.
Our investing activities during the years ended
CIDARA THERAPEUTICS, INC.
Net cash provided by financing activities during the year ended
December 31, 2021consisted primarily of (i) net proceeds of $36.6 millionfrom the sale of 17,064,511 shares of common stock and 774,194 shares of Series X Convertible Preferred Stock pursuant to concurrent underwritten public offerings and (ii) $12.5 million, after deducting placement agent fees, from the sale of 5,608,510 shares of common stock under our Sales Agreement, offset by principal payments of $4.4 millionmade in connection with our loan from Pacific Western Bank. Net cash provided by financing activities during the year ended December 31, 2020consisted primarily of (i) net proceeds of $29.2 millionfrom the sale of 6,639,307 shares of common stock and 531,288 shares of Series X Convertible Preferred Stock pursuant to the exercise of subscription rights issued in our rights offering and (ii) $11.0 million, after deducting placement agent fees, from the sale of 3,430,790 shares of common stock under our Sales Agreement, offset by principal payments of $3.0 millionmade in connection with our loan from Pacific Western Bank. Net cash provided by financing activities during the year ended December 31, 2019consisted of (i) net proceeds of $9.0 millionfrom the sale of 4,781,408 shares of common stock under the Mundipharma Stock Purchase Agreement and (ii) $5.3 million, after deducting placement agent fees, from the sale of 2,095,887 shares of common stock under our Sales Agreement.
Working capital requirements
We performed an analysis of our ability to continue as a going concern. We believe, based on our current business plan, that our existing cash and cash equivalents will not be sufficient to fund our obligations for the next twelve months. Our ability to execute our operating plan depends on our ability to obtain additional funding through equity offerings, debt financings or potential licensing and collaboration arrangements. We plan to continue to fund our losses from operations through cash and cash equivalents on hand, as well as through future equity offerings, debt financings, other third party funding, and potential licensing or collaboration arrangements. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. Even if we raise additional capital, we may also be required to modify, delay or abandon some of our plans which could have a material adverse effect on our business, operating results and financial condition and our ability to achieve our intended business objectives. Any of these actions could materially harm our business, results of operations and future prospects.
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